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* C$ ends at C$1.0956 per US$, or 91.27 U.S. cents
* Canadian consumer prices fall in July
* Bond prices flat across curve (Updates to session close)
By Frank Pingue
TORONTO, Aug 19 (Reuters) - Canada's dollar closed higher for the second straight session on Wednesday, due largely to a rally in prices for oil, a key Canadian export, and the ability of North American equities to close higher.
The currency started to strengthen alongside a surge in oil prices after a report showed demand for the commodity could be recovering in the United States. [ID:nSIN507010]
The rise in oil prices offset investor worries over the economic recovery and helped North American stock indexes rebound from early lows to finish higher.
"We started the morning with U.S equity futures pointing to a negative open and it opened deeply in negative territory, but since then general sentiment has turned around," said Matthew Strauss, senior currency strategist at RBC Capital Markets.
"And more specifically for the Canadian dollar was the very strong rally in oil prices ... that was a major change for the Canadian dollar today."
The currency ended the session at C$1.0956 to the U.S. dollar, or 91.27 U.S. cents, up from C$1.1018 to the U.S. dollar, or 90.76 U.S. cents, at Tuesday's close.
Data released earlier in the session showed consumer prices in Canada fell at the steepest rate in 56 years in the 12 months through July. [ID:nN19463312]
However, the CPI report did not influence the currency because it was largely in line with forecasts and did not change market expectations of Bank of Canada policy action.
The currency rose as high as C$1.0944 to the U.S. dollar, or 91.37 U.S. cents, on Wednesday, comfortably off its session low of C$1.1114 to the U.S. dollar, or 89.98 U.S. cents.
"There's still a lot of people away in the summer so this volatility is exaggerated just because liquidity is a little bit thinner than it normally is," said David Bradley, director of foreign exchange trading at Scotia Capital.
BOND PRICES STEADY
Canadian bond prices CABONDT ended mostly flat across the curve as analysts shrugged off the consumer prices report and said there was no risk of prolonged deflation.
The data left little demand for more secure assets like government debt but also kept dealers from unloading bonds.
"There hasn't been any significant new event to drive the market today," said Sheldon Dong, fixed income analyst at TD Waterhouse Private Investment. "We had a bit of CPI deflation but that was pretty close to the consensus number."
Other data showed Canada's composite leading indicator rose by 0.4 percent in July from June given strong performances by the housing sector and stock market. [ID:nN19127394] But the report is not generally a market mover.
The two-year Canadian bond ended up 3 Canadian cents at C$99.46 to yield 1.273 percent, while the 10-year bond rose 12 Canadian cents to C$102.82 to yield 3.408 percent.
The 30-year bond slipped 10 Canadian cents to C$118.40 to yield 3.908.
Canadian bonds underperformed their U.S. counterparts across most of the curve. The Canadian 30-year bond was 38.7 basis points below the U.S. 30-year yield, versus 45.3 basis points on Tuesday.